Policy Validation
(From Chair Powell's press conference 1/27/21)

You know, in terms of tapering, it's just premature. We just created the guidance. We said we want to see substantial further progress toward our goals before we modify our asset purchase guidance. It's just too early to be talking about dates. We should be focused on progress that we'll need to see actual progress. When we see ourselves getting to that point, we'll communicate clearly about it to the public. So nobody will be surprised when the time comes. We'll do that well in advance of actually considering what will be a pretty gradual taper. >> If I might, your policies are working and you can do more, the question is can you stop doing it when it's time? >> Chairman Powell: Yeah. So I was here -- we had all the same questions back in -- after the global financial crisis. We raised interest rates, we froze the balance sheet size and slang the balance sheet -- shrank the balance sheet size. We can do that again. We learned a lot from that experience. We understand as we understood then, but even more so we understand the way to do is it communicate well in advance, do predictable things and move gradually. We're going to be transparent. But honestly, the whole focus on exit is premature if I may say. We're focused on finishing the job we're doing, which is to support the economy, give the economy the support it needs. There are people out there who have lost their jobs. It's essential we get them back to work as quickly as possible. We want to do everything we can to do that and that is our primary focus right now. It's too soon to be worried about that. When we come to exit, we have an understanding of how to do that and we'll do it very carefully but in the meantime our focus is giving the economy the support it needs.

(Dow Jones 1/21/21)

BOJ Could Tweak 10-Year Yield Target Range at Policy Review

As Bank of Japan Gov. Haruhiko Kuroda says he is looking for more effective ways to control the nation's yield curve, one option could include widening the target range for the 10-year JGB yield, which is currently set between minus 0.2% and plus 0.2%, according to people familiar with the BOJ's thinking. Mr. Kuroda said Thursday the central bank had no plan to change the overall framework of the yield curve control policy, but would examine the side effects of such measures, including the impact on
market functions, at its next policy-setting meeting in March.

Policy Validation
(National Post 1/29/21)

BOJ drops more hints of bigger yield moves ahead of March review
TOKYO - Bank of Japan policymakers discussed the merits of allowing long-term yields to move more flexibly around the bank's target, a summary of opinions at their January meeting showed, a sign the idea will be a key element of its policy review in March.
As the coronavirus pandemic forces it to maintain a massive stimulus program for a prolonged period, the BOJ plans to announce in March ways to make its tools more sustainable.
"With our monetary easing steps to be prolonged, allowing the 10-year government bond yield to move upward and downward to some extent ... will contribute to financial system stability," said one member, according to the summary released on Friday.
Allowing 10-year yields to move more widely likely won't hurt the economy much, because most money raised by households and companies aren't directly affected by long-term rate moves, another opinion quoted in the summary showed.
The comments are the strongest hints to date that the BOJ will allow long-term rates to deviate further from its 0% target in its March policy review.

(Bloomberg 1/21/21)

Euro Rises to One-Week High on Hint of ECB Easing Life Support

German, Italian bonds slip; ECB seen easing pace of purchases
Implicit yield curve control could be temporary, says Robeco
The euro climbed and bonds across the region slid on signs that the European Central Bank’s level of stimulus may slow over the coming months.

The common currency rose as much as 0.6% to touch $1.2173, the highest level in a week, and both German and Italian bonds declined. The moves came after the policy statement said that its pandemic-bond purchase program need not be used in full should favorable financing conditions be maintained.

With the ECB having ramped up its bond-buying plan to 1.85 trillion euros last month, market expectations for any change going into this meeting were low. While the region’s risks are to the downside, President Christine Lagarde highlighted the vaccine rollout, the Brexit deal and the bloc’s joint bond issuance as positive economic drivers.

(Dow Jones 1/21/21)

ECB Comments Accelerate Eurozone Government-Bond Selling -- Market Talk

Selling in eurozone government bonds accelerates after the European Central Bank flagged the possibility of not using the EUR1.85 trillion Pandemic Emergency Purchase Programme in full if favorable financing conditions can be maintained. Ten-year German Bund yields trade 3.5 basis points higher at -0.524%, and yields of other core and semi-core 10-year bond yields are up by a similar magnitude. Peripheral government bonds, in particular those of Italy, come under greater pressure, with the yield on the 10-year Italian BTP 6 basis points higher at 0.675%, according to Tradeweb.

(Bloomberg 12/28/20)

Alibaba Antitrust Fears Drive $200 Billion Chinese Tech Selloff
Alibaba Group Holding Ltd. led a second day
of frenetic selling among China’s largest tech firms, driven by
fears that antitrust scrutiny will spread beyond Jack Ma’s
internet empire and engulf the country’s most powerful
corporations.

Alibaba and its three largest rivals -- Tencent Holdings
Ltd., food delivery giant Meituan and JD.com Inc. -- have shed
nearly $200 billion over two sessions since Thursday, when
regulators revealed an investigation into alleged monopolistic
practices at Ma’s signature company. That marked the formal
start of the Communist Party’s crackdown on not just Alibaba but
also, potentially, the wider and increasingly influential tech
sphere.

Policy Validation

(Bloomberg 12/27/20)
China Orders Ant to Return to Its Roots in Payments Services (3)

Chinese regulators ordered Jack Ma’s online
financial titan Ant Group Co. to return to its roots as a
provider of payments services, threatening to throttle growth in
its most lucrative businesses of consumer loans and wealth
management.

The central bank summoned Ant executives over the weekend
and told them to “rectify” the company’s lending, insurance and
wealth management services, the People’s Bank of China said in a
statement Sunday. While it stopped short of directly asking for
a breakup of the company, the central bank stressed that Ant
needed to “understand the necessity of overhauling its business”
and come up with a timetable as soon as possible.

(CNBC 12/16/20)

The Federal Reserve on Wednesday made a key adjustment to its efforts to support the economy, while upgrading its outlook for growth.
As expected, the Fed held benchmark interest rates near zero following the conclusion of its two-day meeting.
Investors were watching whether the Fed would present outcomes-based guidance in which it would state the conditions necessary for a reversal in policy.
The Fed delivered in that respect, saying it would continue to buy at least $120 billion of bonds each month “until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” the post-meeting statement said.
“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses,” the Federal Open Market Committee added in a statement that gained unanimous approval.
The committee, however, did not say it would extend the duration of those purchases.

(CNBC 12/10/20)

ECB expands and extends its bond buying as coronavirus resurgence weighs on the recovery

The European Central Bank on Thursday expanded its massive monetary stimulus program by another 500 billion euros ($605 billion), as a second wave of lockdown measures weigh on the euro area’s economic recovery.

Markets had largely expected the central bank to add to its bond buying, having vowed back in October to “recalibrate its instruments” as a resurgence in coronavirus cases across the continent led to further national shutdowns.

The ECB held interest rates on its main refinancing operations, marginal lending facility and deposit facility at 0.00%, 0.25% and -0.50%, respectively.
The central bank launched its Pandemic Emergency Purchase Programme (PEPP) in a bid to shore up the bloc’s economy in the wake of the pandemic. Following Thursday’s expansion, the total asset purchase value is 1.85 trillion euros, and the ECB extended the horizon for purchases under the PEPP to March 2022.

In a statement following the decision, the ECB said it would conduct net purchases until its Governing Council judges that the “coronavirus crisis phase is over,” and restated that interest rates would remain at their current low levels until it the central bank sees the inflation outlook “robustly converge” to its target of “close to, but below” 2%.

The Governing Council also opted to “recalibrate” the third edition of its targeted longer-term refinancing operations (TLTRO III), which are ultra cheap loans for banks, by extending the current favorable terms to lenders by 12 months until June 2022.

(Bloomberg 12/9/20)

Poland, Hungary Say Deal Reached on $2.2 Trillion EU Stimulus

Poland and Hungary have agreed on a compromise with Germany to unblock the European Union’s $2.2 trillion budget and pandemic stimulus plan, a senior government official in Warsaw said. The compromise would end a standoff that saw Budapest and Warsaw threaten to torpedo the EU’s 750 billion-euro ($909
billion) pandemic aid fund and the 2021-2027 budget over objections to attaching rule-of-law conditions to cash. Polish Deputy Prime Minister Jaroslaw Gowin said an agreement had been clinched with Germany, which holds the EU’s
rotating presidency, that would now be presented to the rest of the bloc. A deal could be finalized by Friday by the end of a two-day summit of European leaders in Brussels, he said. The zloty jumped to the highest level against the euro
since September on news of the EU deal. The forint also gained.

(Bloomberg 1/21/21)

Treasury-Fed coordination
Yellen suggested that she won’t mount a fresh fight to revive several Federal Reserve lending facilities that were phased out by her predecessor. “The Federal Reserve will continue to provide support to the economy through its ongoing programs and the use of its available tools but as mandated by Congress, the 13(3) facilities funded by the Cares Act will not be available,” she wrote, referring to a section of the law governing the Fed

(Bloomberg 11/25/20)

Fed to Hold Off With Maturity Extension in December, Maybe 1Q21
RECENT EVENT REACTION: The minutes of the November FOMC meeting suggest any change to the Federal Reserve's asset purchases will be a 2021 action, in our view. The committee noted that its tool kit included both an outright maturity extension while maintaining current purchase sizes, or potentially extending purchases to longer-term securities while cutting total notional value the Fed is buying. We think the former is more likely in a deteriorating economic environment.

(Bloomberg 12/1/20)

China plans to impose “special and innovative regulatory measures” on financial technology behemoths such as Jack Ma’s Ant Group Co. to eliminate monopolistic practices and strengthen risk controls.
Advances in technology have brought tremendous change to
the financial sector, Guo Shuqing, chairman of the China Banking
and Insurance Regulatory Commission and Party Secretary of the
central bank, wrote in an article outlining regulations over the
next five years. It was cited in the official Shanghai
Securities News.

(Bloomberg 11/3/20)

Xi Says Economy Can Double as China Lays Out Ambitious Plans

Chinese President Xi Jinping said the economy can double in size by 2035 and the country can reach high-income status in the next five years as the Communist Party outlined ambitious plans for the nation’s future. “It is entirely possible to reach the high-income country status by current standards by the end of the 14th Five-Year Plan, and to double the total economic output or per capita income by 2035,” Xi said in a speech to the party’s Central Committee, according to state media Xinhua.

(Bloomberg 11/10/20)

EU Clears Hurdle to Unlock 1.8 Trillion-Euro Budget, Stimulus

European Union negotiators reached a deal on the bloc’s long-term spending plans, moving a step closer to finalizing its landmark 1.8 trillion-euro ($2 trillion) budget and stimulus accord.

The EU is under pressure to wrap up the emergency package so that it will be operational next year, as the continent contends with a surge in coronavirus cases and the worst recession in its history. The recovery plan is expected to add 2% to the EU’s economic output in the coming years, according to European Commission projections.

*GERMAN BONDS EXTEND DECLINE, 10Y YIELDS RISE 3BPS
*EUR/USD TURNS POSITIVE AFTER EU BUDGET NEWS

(Bloomberg 10/29/20)

ECB Signals December Stimulus Likely Amid European Lockdowns

The European Central Bank gave a strong indication that it will likely boost its emergency bond-buying program to stabilize the euro-area economy after governments imposed a spate of new restrictions to control the coronavirus.

For now, Governing Council held its pandemic bond-buying program at 1.35 trillion euros ($1.6 trillion), reiterating that it will run until at least June 2021 and won’t be stopped until the “crisis phase” of the pandemic is past. The ECB’s deposit rate stayed at -0.5%.
The policy statement also said though that new economic forecasts in December will set the stage for more support.

“The new round of Eurosystem staff macroeconomic projections in December will allow a thorough reassessment of the economic outlook and the balance of risks. On the basis of this updated assessment, the Governing Council will recalibrate its instruments, as appropriate, to respond to the unfolding situation.”

Policy Validation

(Bloomberg 10/6/20)

Powell Warns of Weak U.S. Recovery Without Enough Government Aid
‘Risks of overdoing it’ are smaller than too little stimulus
GOP opposition to larger fiscal package has hampered a deal
Federal Reserve Chair Jerome Powell warned of a weak U.S. recovery without sufficient government aid and said providing too much stimulus wouldn’t be a problem.

Powell’s remarks Tuesday came amid Republicans’ opposition to a larger relief package that’s kept talks with Democrats at a stalemate in Congress since aid to jobless Americans and small businesses expired in July and August.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell said in the text of a speech for a virtual conference hosted by the National Association for Business Economics. “By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”

(Bloomberg 10/7/20)

Fed to Debate Bond-Buying Program at Future Meetings

Some U.S. central bankers sought further debate on the future of the Federal Reserve’s asset-purchase program when they met last month, signaling they’d be open to altering or increasing bond buying going forward.

Minutes of the Federal Open Market Committee’s Sept. 15-16 meeting released Wednesday showed that some participants “noted that in future meetings it would be appropriate to further assess and communicate how the committee’s asset-purchase program could best support” the Fed’s dual-mandate objectives.
Policy makers agreed at the meeting to hold rates near zero until the labor market reached maximum employment, and inflation reached 2% -- and was on track to moderately exceed that goal for some time. Forecasts also released on Sept. 16 showed officials didn’t expect the economy to reach those targets until 2023 or 2024, as it gradually recovers from the steep recession inflicted by the coronavirus pandemic.

U.S. central bankers, gathering virtually as a precaution against Covid-19, agreed to keep purchasing Treasury and mortgage-backed bonds at a combined pace of about $120 billion a month.

At upcoming meetings in November and December, officials could seek to give the economy more monetary policy support by increasing the amounts of Treasuries and mortgage-backed securities they buy in an attempt to lower borrowing costs for households and businesses.

Policy Validation

(WSJ 9/23/20)

The Fed last week said it was committed to holding rates near zero until the labor market is strong, inflation reaches 2%, and Fed officials believe inflation will run slightly above 2% for some interval. Mr. Clarida said the Fed would need to reach all three conditions before considering any move to raise rates. Simply reaching 2% inflation wouldn’t on its own satisfy the central bank’s new criteria, he said.

Projections released after last week’s rate-setting committee meeting showed most officials expect it will take three years for inflation and employment indicators to return to levels seen earlier this year, before the pandemic disrupted the U.S. economy.

Mr. Clarida said that would represent a stronger rebound than the one that unfolded over the decade following the 2008 financial crisis. Nevertheless, the Fed’s three-year projection window isn’t long enough for Fed officials to project an overshoot of their 2% inflation target given the severity of the current downturn, he said.

(Bloomberg 9/23/20)

Powell: Fed Studying Treasury Market Performance During Crisis
“What we’re doing is, we’re going back now, as we did after the financial crisis, and we’re looking at where were the stress points, how did all the work we did for the last 10 years, how did it hold up?” says Fed Chair Jerome Powell.
“What happened that was new? And we’re going to be doing a lot of work on that”
“We are doing a lot of work on that and a central part of that will be the Treasury market and what changes do we need to make in and around the Treasury market so that we don’t have this happen again”
Powell answers questions Wednesday before House select sub committee on the coronavirus pandemic.

Policy Validation

(Washington AP 9/16/20)

Federal Reserve Sees Rates Near Zero At Least Through 2023

The Federal Reserve expects to keep its benchmark interest rate pegged near zero at least through 2023 as it strives to accelerate economic growth and drive down the unemployment rate.
The central bank also said Wednesday that it will seek to push inflation above 2% annually. The Fed left its benchmark short-term rate unchanged at nearly zero, where it has been since the pandemic intensified in March.
The Fed's statement formalized a change in its policy toward inflation. Fed chair Jerome Powell first said last month that the Fed would seek inflation above 2% over time, rather than just keeping it as a static goal.
The Fed also said Wednesday that it will continue purchasing about $120 billion in Treasurys and mortgage-backed securities a month, in an effort to keep longer-term interest rates low.

(MarketWatch 9/10/20)

European stocks edge lower, euro rises as ECB lifts forecasts without talking down currency

European stocks edged lower and the euro rose on Thursday, as the European Central Bank kept interest rates unchanged and offered a slightly more optimistic view of the economy.
Up 1.6% on Wednesday, the Stoxx Europe 600 declined 0.3%.
The ECB lifted its estimate for the eurozone economy this year, now seeing a contraction of 8% versus its previous estimate of an 8.7% drop, as it left 2021 and 2022 forecasts mostly unchanged.
During her introductory comments, ECB President Christine Lagarde did not mention the recent strength in the euro as a matter for concern.
Asked by a reporter, Lagarde said the ECB's governing council discussed the euro appreciation but said it doesn't "target the exchange rate." Lagarde said the ECB will have to "monitor carefully" the rate since it impacts inflation.
The euro traded at $1.1891, vs. $1.1804 on Wednesday.

Policy Validation
(Bloomberg 9/14/20)

Japan’s Suga Wins Ruling Party Race to Replace Premier Abe

Japanese Chief Cabinet Secretary Yoshihide
Suga was elected leader of the ruling Liberal Democratic Party
by an overwhelming majority, ushering in the country’s first
change of prime minister in almost eight years.

(Bloomberg 9/1/20)

Japan’s Suga Favorite to Succeed Abe After Party Limits Vote

Japan’s ruling Liberal Democratic Party adopted a structure for a vote to
replace outgoing Prime Minister Shinzo Abe that could help the premier’s
right-hand man, Yoshihide Suga, take over. Party officials decided on a
system Tuesday that would give more weight to lawmakers in the party
over rank and file members, LDP General Council Chairman Shunichi Suzuki
told reporters.

The move comes as Suga appears to be picking up enough
support among powerful factions of lawmakers, which put him far
ahead of any contender. The system decreases the influence of
regional voters, who have previously shown support for a top
rival, former Defense Minister Shigeru Ishiba, who on Tuesday
officially declared his candidacy.

(Bloomberg 8/27/20)

Treasuries Extend Gains After Fed Unveils New Inflation Approach

Treasury futures rise to session highs after Fed Chair Powell confirms a new approach to policy that takes a more relaxed stance on inflation and on its view of how low U.S. unemployment can go.
Gains are led by long-end of the curve, pushing 5s30s onto lowest levels of the session; yields richer by 1bp to 3bp across the curve
Move is accompanied by sliding inflation breakevens with 10-year tenor dropping around 4bp from near highs of the day
S&P 500 E-mini futures jump to session highs, advancing 0.2% on the day.

(Bloomberg 8/19/20)
Treasuries Fall After FOMC Minutes Are Silent on Asset Purchases
By Elizabeth Stanton
-- Treasuries erased gains and fell to session lows after minutes of the FOMC’s July 29 meeting were largely silent on the prospect of changes to the size or composition of the central bank’s purchases of Treasury securities.
Yields across the curve reached session highs, led by the long end, steepening the curve; 10-year yield erased what remained of an earlier decline of as much as 2.4bp and climbed as much as 1.8bp on the day to reach 0.687% before stabilizing